Mr. London was charged with one count of conspiracy to commit securities fraud through insider trading, according to the criminal complaint. He faces up to five years in prison and a $250,000 fine. The complaint said the trades generated a profit of more than $1 million for his friend, Bryan Shaw. The complaint also says Mr. London tipped off Mr. Shaw about five KPMG clients, more than was previously known.

Fox Business has posted the complaint which includes an exhibit photo of Bryan Shaw handing an envelope to London that you see above. The five clients that Mr. London says he tipped Shaw about are Herbalife, Skechers, Deckers Outdoor, RSC Holdings, and Pacific Capital Bancorp.

We'll continue to update this post as we wade through the complaint, but you can help us find the interesting stuff too. We've included it on the next page for your reading pleasure.

UPDATE:

Go read the complaint if you haven’t. Seriously. FBI Special Agent Jeremy Tarwater doesn’t spare the details. Here are some of the notable ones I pulled out.

Typically, London would give Shaw a few days heads up on press releases for the companies. Sometimes London would read them to Shaw over the phone. Shaw would give London a little taste of the action afterwards. London would “usually remark that Shaw was too generous and did not have to pay him for the information, but London always took the cash that was offered to him.”

Including the cash, Shaw bought London “expensive meals and paid for concert tickets […] including tickets to a Bruce Springsteen concert.” Shaw says he spent $25,000 to $45,000 on concernt tickets. And yes, there was a Rolex Daytona Cosmograph involved.

The complaint says that when Fidelity put a hold on Shaw’s account, London told him there was no cause for concern and “that insider trading was like counting cards in Las Vegas — if you were caught, they simply ask you to leave because they cannot prove it.”

On a February 14th phone call, London told Shaw that Herbalife’s earnings guidance was going to be raised and Shaw wanted to know if that meant the stock would go up. London then said, “I’ll find out, I’ll ask my team just to send me…what the guidance, what they’re, how they’re raising it.”

The spat between hedge fund titans Bill Ackman and Carl Icahn over Herabalife played into London and Shaw’s strategy. London told Shaw on a February 19th phone call that because of Ackman’s activities, they should “take a pass on this one” and that there would be future opportunities because Herbalife was raising their earnings guidance. Then there was this exchange regarding Icahn’s large purchase of shares:

Shaw: “I wish you would’ve known that he was going to release that and we could’ve made some money.”

London: “Yeah, that would’ve been nice.”

Over the phone on March 4th, Shaw and London set up to meet on March 7th. “I will get you some cashola,” Shaw said to London.

During that meeting, Shaw wore a wire and a video recorder and the picture of above was taken during the encounter.

I’ll just never get it, unless it made him feel like James Bond. Even if he wasnt a Vice Chairman like Flanagan at Deloitte, the risk of losing partner money and benefits would seem too great to me.

Bob Dobalina

So Shaw was an informant – interesting. I wonder if London can play it off as entrapment à la John Delorean & his cocaine issues as a defense. Kind of a dick move on Shaw’s part

$43517978

Shaw has his own problems. I’m sure he made a deal with the feds in exchange for his cooperation.

When the shit hits the fan, it’s every man for himself.

guest

RSC Holdings was acquired by United Rentals a year ago for 2B. I wonder if United Rentals is a KPMG client

James Ulvog

Both the criminal indictment and SEC complaint say yes.

guest

United Rentals might be a KPMG tax client

Thankgodnotpeatmarwick

The complaint say RSC is a KPMG client. United is EY. The FBI report says after he met with two senior KPMG partners in Phoenix, he called his buddy to tip him off that their client was being acquired. Not unusual for the auditor to have this info before it is announced since presumably their workpapers were reviewed for due diligence purposes, and this wasn’t a hostile deal.

James Ulvog

You are correct. RSC Holdings was the KPMG client. They were
acquired by United Rentals. The golf buddy invested in RSC and allegedly made a
profit over $190K

guest

Proxy has E&Y listed as auditor

James Ulvog

Just a few tidbits of note:

There are five KPMG clients involved, not 2.

The FBI claims to have recorded 2 incidents of the golf buddy handing the partner $5k in cash and discussing timing of buys/sells during both occassions.

Golf buddy claims to have made payments on multiple occasions with $10k bricks of $100 bills.

Notice the high level of advice from the partner on how to structure trades, when to buy, when to sell, and giving advice on how stock prices are likely to respond to particular earnings releases.
We can wait for Caleb or Greg to assess whether it looks like he was running his portfolio.

Either London is dumb as bricks or we have to be missing something. $50k in payment for information that resulted in $1.3M of profit?

$43517978

London was an accountant at KPMG so his accounting is probably fucked up. The total could have been $100,000 or $200,000 (deemed immaterial).

$43517978

One of the big losers in all of this is Verizon Wireless. That was a lot of fucking dropped calls.

Can you hear me now? No.

$43517978

So has anyone gone back to London’s statement from yesterday to count all the lies? The ones I can remember are…

1. He only gave me a few thousand bucks.
2. I didn’t know he was trading on the info.
3. When I found out he was trading on the info my heart sank.
4. I never passed documents to him.*

*This may actually be true. The complaint says that London read earnings releases to Shaw over the phone. But I’m gonna call this a lie anyway (technicality).

Robert Palmer

Looking forward to reading the report this weekend

$43517978

You definitely should. It’s a fascinating read.

$43517978

I think my favorite line from the report is…

“…(London) explained that insider trading was like counting cards at a casino in Las Vegas – if you ever get caught, they simply ask you to leave because they cannot prove it.”

Yes, the leader of KPMG’s southwest audit practice said this.

James Ulvog

That was in the context of the Fidelity back office staff freezing the account in July 2012 because of unusual trading (para 22g). The golf buddy was worried they might get caught. The CPA wasn’t. The partner continued to pass on inside information *after* that warning that Fidelity was on to them.

$43517978

Yeah, great point. If I were Shaw and my brokerage firm suspended my account, I would shit my pants.

James Ulvog

From reading the indictment, it seems like freezing the account barely slowed them down.

Robert Palmer

Just read the report … Quite remarkable about how arrogant London was on all accounts.

guest

goes to the kpmg risk management methodology

guest

The guy sits on the board of the LA Sports council and sells his soul for Springsteen tickets? I would think he could get tickets for something like that through that relationship or (better yet) through the KPMG T&E or Business development office. The arrogance is off the charts but Im sure he’ll be humbled very soon. Now back to John V rooting for Ph-Ph-Ph Phillll

John

KPMG incredible reputation is stronger and stronger !!!

Sigmund Freud

Within the Big 4, it is well known the KPMG partners are paid at a lower level than the other three. Maybe this guy at some level was making some ill-fated statement or thinking someone “owed” him?

guest

the kpmg campus recruiting swag bag will now include an orange jumpsuit emblazoned with the kpmg logo along with instructions on “How to do the perp walk”

Robert Palmer

Maybe also some literature on the etiquette of how to accept envelopes of cash from a criminal on the street.

Jack Handy

“He faces up to 5 years in prison and a $250,000 fine.” That’s it?! Are you serious? That is such a joke of a penalty. So you’re telling me I can pass along confidential information on no less than 5 publically traded companies, make over $1M and that is my maximum punishment? Perhaps people would be less inclined to commit fraud if the penalty was a minimum of 15 years in a maximum security prison.

Robert Palmer

Five years is a long time … And he is going to lose all of his money in the civil lawsuits. Who knows, more charges will probably be added as well.

Nice.. Just got document preservation notices for the companies involved

jerky

The complaint says that when Fidelity put a hold on Shaw’s account, London told him there was no cause for concern and “that insider trading was like counting cards in Las Vegas — if you were caught, they simply ask you to leave because they cannot prove it.”
I guarantee you London has been doing this his entire career.

Gold

….and perhaps got the idea from his other KPMG colleagues who have been profiting for years. No way he just started doing this two years ago. A lot of people were doing it in the 90’s.